Top House tax writer to release financial product tax draft

WASHINGTON (Reuters) - The top Republican tax writer in the House of Representatives is close to releasing a draft on ways to revamp corporate taxes levied on complex financial products, a committee aide said on Wednesday.

The proposal, expected as early as this week, will come from House Ways and Means Committee Chairman Dave Camp, whose panel has been exploring a broad tax code overhaul for more than a year.

Camp wants to slash the top corporate tax rate to 25 percent from 35 percent and simplify the code. Critics of the current corporate tax system note that the United States has one of the steepest corporate tax rates in the world.

Most companies do not pay the top rate, after deductions and other tax breaks. But both parties agree, including Democratic President Barack Obama, that the official rate should be cut.

The House panel, along with the Senate Finance Committee, held a joint hearing on financial products in late 2011, exploring the taxation of stocks, bonds and derivatives.

One witness at the time said derivatives-based tax avoidance strategies are draining revenue from federal coffers.

Under corporate tax law, interest paid on debt is tax deductible, a feature of the tax code that is often abused, and critics say unwisely favors debt over equity.

“Not surprisingly they are looking to confer some of that knowledge into a discussion draft for a possible piece of tax reform,” said Jon Traub, a former staff director to Camp who now works as a consultant at Big Four accounting firm Deloitte.

Both congressional panels have been holding hearings to explore a revamp of the entire tax code for more than a year.

TAX REVAMP EYED

Camp has said he will release legislation meant to accomplish that politically daunting feat in 2013, but it is unclear if the effort could garner the backing of Democrats.

Congress is locked in a series of budget battles, including over the debt ceiling and automatic spending cuts.

In 2011, Camp released a discussion draft on international taxation, outlining a series of options for how multinational companies are taxed on foreign profits. Most companies and Republicans back a system of “territorial” taxation, where offshore profits would be largely exempt from U.S. tax.

Obama has backed sticking with the current “worldwide” system, where companies are taxed on all profits earned.

At the same time, Treasury Secretary Timothy Geithner was moving in the direction of a territorial tax system during 2011 budget talks, according to congressional aides.

Camp has been working with his Senate counterpart, Democrat Max Baucus, chairman of the Senate Finance Committee, to come together on these issues, but there has been little visible progress over the past year.